Navigating a first-time tax hire in a private equity backed business

Author Beth Henslow
February 13, 2024

Over the last three years there has been a steady increase in the number of private equity businesses hiring their first in-house tax professional. It is an area that is growing and developing so quickly with the increase of cash injection into the PE space, meaning that these businesses are very exposed from a tax perspective quite early on in their journey.

In our latest client interview, Jacqui Stewart, Global Head of Tax, now at Burberry, a FTSE 100 business, shares her experience of joining Arxada as their first time tax professional and offers plenty of words of wisdom.

When you moved from Ferguson into Arxada (LSI at the time) what was it that really interested you about being a first time tax hire in a private equity backed business?

As Ferguson was moving most of its operations to the US over a period of time, I had time, and worked with a career coach to consider what was important to me in my next role. I realised that it wasn’t important to me to be in another FTSE 100 company (maybe because I had ticked that box), what was most important was for the next company to be of a sufficient size and geographic footprint to be interesting from a tax perspective e.g. I wasn’t interested in a UK or EMEIA only group.

I was relatively sector agnostic but had a preference for a business with tangible assets (e.g. consumer products, manufacturing, life sciences) – again, because the transfer of product cross-border creates complexity from a tax perspective. I am also very passionate about developing teams and therefore knew that I would not accept a role without a team.

I was not concerned about the fact that Arxada was private equity owned. I spoke to people in PE owned businesses and was comfortable that it was a change that I would be able to adapt to. Although Ferguson is a large listed group, it was run in a very agile way and not like a huge corporate, so I did not feel that the transition would be too great. I also spoke to some of the PE partners during the recruitment process to understand what their focus was and I knew that if things didn’t work out, that I could move back into FTSE, as I had built up a good reputation and network.

When would you say is the most important time to hire a dedicated tax head into a private equity portfolio business?

I only have experience of being hired in on day one. It would actually have been better if I had been hired in the months leading up to the completion of the purchase and to be part of the tax structuring of the acquisition as well, to enable a more orderly and structured handover from the previous owner ahead of day one.

Arxada is a large and complex group and therefore not having a head of tax or tax function from the start was not an option.

I think the timing of the hiring of a tax head is determined by the complexity and size of the PE backed company, together with what capabilities are in the finance function. In a small, simple group, it may not be necessary, if compliance is outsourced and overseen by finance, however in a complex multinational that is undertaking transactions and has cross-border movement of goods, then I think it is necessary sooner rather than later.

It’s probably important to have dedicated tax resource ahead of an exit, to ensure maximum value is created for the exit.

What advice would you give to someone who is considering moving out of a listed business into a private equity backed business and what should they be thinking about?

Don’t get hung up too much on listed vs PE. Every business is different.

If the ambition of the PE company is to IPO then coming from a listed business you will have a lot of experience of the governance and procedures required in a listed business, which will be an advantage.

In PE, there may well be less of a focus on corporate governance and procedures for Board and Audit Committee than in listed companies. In my experience whilst these committees existed, there was less formality and structure around them.

From a tax perspective, there will likely be a real focus on cash-tax and maybe not as much interest in ETR as there is in listed companies. However, ETR will probably become more of a focus as exit preparations begin, especially if this is expected to be via an IPO. In a PE owned company there will likely also be significant amounts of debt, so ensure you are comfortable with different debt capacity and interest deductibility rules in the key territories for the business.

Every PE house is different and has a different culture and way of running their portfolio companies. The two PE owners I worked with were very light touch from my perspective and I had the authority to make the same decisions as I did in a listed business. I reported into the Group CFO and dealt with the PE partners as part of Audit Committee and on deals, whereas I had little involvement with the PE tax teams. However, I know some PE houses run their portfolio companies with much more direct control. Do some due diligence on the PE owner(s) and how they operate their portfolio. Understand how much autonomy you need / how much direct control you are happy with. I was clear that I needed to run the tax strategy and not simply execute a strategy set by the PE owners and that worked well at Arxada.

If the first PE roles you look at do not have the balance you want, don’t worry, they’re all different so be patient.

How did the interview process differ within a PE backed business and what advice/pointers would you give to prepare for these interviews in comparison?

I had the normal interviews with the CFO, HR and FLT peers. I then also had 2 separate interviews with the PE deal partners (one for each of Bain and Cinven).

I was clear about how I would plan to set up the department and team and whether I favoured an in-sourced/out-sourced model or a combination.

There was very little focus on how I would adapt to PE, but I was clear about understanding the focus on cash tax and the need to make business cases for expenditure.

The main priority was ensuring that my experience fitted what Arxada needed. I had a lot of US and Swiss experience which was important, I also had done a lot of corporate structuring and M&A, again very aligned to what activities Arxada performed.

When you joined Arxada, what were your top 3 priorities for tax when you joined in the first 6-12 months?

  • Hire and on-board the team
  • Complete handover from the prior owner and develop the tax strategy building on knowledge gained
  • Implement a controls and governance framework

How would you advise an individual moving into their first Head of Tax role to maximising the relationship with the CFO, and how to best influence them on decisions within the tax team

Prepare a 3 month plan, do an assessment of the current state and recommend a roadmap for the first 3 / 6 / 12 months.

The CFO may assume that tax people are the same as other finance process people, for example in a shared service centre. I faced questions such as “can’t you just hire cheap people in Poland?” As my structure was to have the group tax team as a team of advisors, with compliance in the shared service centres and outsourced, this wouldn’t work. I got data from recruiters and explained the differences and the objections disappeared.

It’s important to always be able to make a finance business case. Tax professional fees will be significantly higher than for other areas of finance, and it is for you to explain why this is. I prepared a business case demonstrating that it was in fact more cost effective to outsource all compliance, than doing it in house. This was a lot of work as I had to get people time and cost data from the shared service centres, work out what additional IT systems we would need etc, but it worked and the outsourcing contract was quickly approved, despite initial resistance due to the significant 3rd party spend.

What advice would you give to someone moving into a role where they now report into a CFO with the PE backed space as opposed to a Head of Tax, and what the CFOs priorities from tax in comparison to a listed group?

I think the biggest difference in reporting to a CFO rather than a Head of Tax, is that you are now the person in the organisation with the most tax knowledge, which can be a bit daunting.

The CFO has a lot of priorities and it is unlikely that tax is going to be near the top of them. Many CFO’s don’t understand tax and may not give you much time, you may need to educate the CFO about what they should be interested in. At the end of the day, you don’t want tax being a top priority, as that probably means something is wrong, but you do need them to understand the important items e.g. any large disputes, any reputation impacting items etc. It is key to be able to communicate complex tax messages in simple terms that senior non-tax stakeholders will understand.

How would you advise to best manage the current tax set-up within a PE portfolio company and what should be the first things you look at to ensure you have an impact early on?

Every company is different. Ensure you know what the PE owner’s and CFO’s priorities are and understand your reporting lines and what involvement the PE tax teams want.

Make sure you understand the corporate and ownership structure, it is likely to be complex, with large amounts of debt with impacts that can flow through to the funds.   

Understand the plans for exit and start preparing. It is important to mitigate risks, with a view to future vendor due diligence or IPO prospectus. This is a key difference from working in a listed company, you need to understand that risks and exposures will all lead to reduced value on an exit. If exit is via a sale, the price will be determined by an earnings multiple and therefore even small exposures have a much larger impact on price than you might imagine.

How did you leverage your network to know what was best to do within a PE backed business, i.e. do you feel you purposely upskilled in other areas with the view that you would go into this sort of role at a stage in your career, or did you feel equipped coming from a listed business that you knew what a great tax team looked like and could implement that into Arxada?

I definitely felt that my role at Ferguson had prepared me well for the future. I had dealt with numerous corporate transactions, financing and large scale team transformations, therefore I felt that I knew what a great tax team looked like and that my corporate experience was relevant.

I was clear that I wanted a team of business partners, who were strong communicators. I was less concerned about relevant industry experience, but more the ability to demonstrate having taken on new areas previously and being able to articulate how to go about approaching new challenges.

I didn’t feel that I needed to upskill in any particular areas due to it being PE backed, more just different industry and profile. I had not had much experience of life sciences or working for a manufacturer and associated TP models, so I leveraged my peer and advisor network to brush up on those areas.

Reflecting on this role now that you are the Head of Tax at Burberry, a FTSE 100 business – what benefits do you feel the Arxada role gave to you in your career, and do you have anything further to add on what we have discussed?

My role at Burberry is my 2nd FTSE 100 Head of Tax role, but the organisation is completely different to Ferguson.

The Arxada role gave me lots of confidence. I had been at Ferguson for 15 years, and it is easy to think you are good at your job just because you’ve been somewhere a long time and are familiar with the way things work. The Arxada role was very tough, as it was a brand new company, under new management, and it did not have fully functioning corporate functions. However, I soon found that my previous experience was very relevant and valuable, and that I was one of a smallish number of people who had worked in a corporate HQ and therefore knew what things should look like. I quickly became well respected and was having influence in the wider finance function and not just tax.

When interviewing for Burberry, I felt that the Arxada experience helped. I was able to easily demonstrate having taken on new areas, having influenced senior stakeholders and having built a team. This coupled with my experiences at Ferguson meant that I had most areas covered.

If you are considering hiring your first tax professional at your business, or if you think this would be an exciting prospect for your next role please get in touch with Beth Henslow.